Ukraine's Yanukovych in talks with Russia's Putin

PaulSonne

Ukrainian President Viktor Yanukovych entered talks with Russian President Vladimir Putin at the Kremlin on Tuesday in hopes of striking a deal to salvage Ukraine's troubled finances and stave off a default.

Mr. Yanukovych's government is hoping to sign some 15 agreements with Russia that would include an agreement on cheaper natural gas supplies, according to a member of the Ukrainian delegation. Ukraine hopes to secure gas from Russia at $250 to $290 per 1,000 cubic meters, down from more than $400, a discount that would alleviate pressure on Ukrainian government finances, the person said.

Russia also has been negotiating a multibillion-dollar loan for Ukraine that would help shore up the finances of Mr. Yanukovych's government, Russian officials confirmed Monday. Ukraine's dollar-denominated bonds rallied on news of the loan, with the yield on the bond maturing April 2023 decreasing to its lowest percentage since Nov. 27.

The high-stakes negotiations come as thousands of Ukrainians protesting Mr. Yanukovych's government continue to rally in a barricaded encampment in Kiev's Independence Square, unrest that has put pressure on Ukraine's bonds and currency. The demonstrators are demanding closer ties with Europe instead of Russia. Some lined the road to Kiev's airport Tuesday morning with the hope of heaping scorn on Mr. Yanukovych's motorcade as he departed for Moscow.

The protests began when Mr. Yanukovych halted a European Union political and trade pact on Nov. 21 and pivoted toward Russia for support in shoring up Ukraine's finances.

Russia has encouraged Ukraine to instead join a customs union it has formed with other former Soviet republics, but the member of the Ukrainian delegation signaled that no customs union deal would be signed during Tuesday's negotiations. Russia has restricted Ukrainian imports in recent months, stepping up pressure on its neighbor. Ukraine hopes to sign a "road map" toward their removal, the delegation member said.

The trade situation "requires urgent intervention," Mr. Yanukovych said at the Kremlin on his way into the talks with Mr. Putin. He said Ukrainian enterprises have lost trade revenue and find themselves in a difficult situation. Russia is Ukraine's largest single trade partner.

"Those agreements, which we have prepared, and the measures that we will take in the near future, will allow us to significantly improve the situation," Mr. Yanukovych said.

Ahead of the talks, Mr. Putin said Ukraine is a "strategic partner" for Russia, but he said that the two countries in recent years have seen a drop in trade. The Russian president said trade turnover between the two countries decreased by 11% last year and even further, by 14.5%, over the course of this year.

"Of course the time has come to take vigorous action to not only return to the level of previous years but also create the conditions to advance further," Mr. Putin said.

Western leaders have urged Ukraine to sign up for aid from the International Monetary Fund and agree to an EU trade and integration pact, but Mr. Yanukovych has said the conditions of such agreements would prove too much for Ukrainian people to bear. Instead, he is seeking money from Russia, a move that has angered the thousands of pro-Europe protesters gathered in Kiev's Independence Square.

At stake is the future of Ukraine's economy, which is struggling from a protracted recession. Earlier this month, Ukrainian First Deputy Prime Minister Serhiy Arbuzov said Kiev needs at least $10 billion to save its failing economy after its gold and foreign reserves dropped by nearly half over the past two years to less than $19 billion in November.

Economists say a sovereign default is unlikely and could only happen if Ukraine's reserves shrink further and Kiev fails to agree on aid from either Russia or the IMF. Ukraine has to pay some $9 billion in sovereign debt by the end of 2014.

Ukraine's central bank has been spending its reserves to prop up the exchange value of the local hryvnia currency. A further depletion of its reserves raises the risk of currency devaluation, which in turn could fuel more social unrest.

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